Genextra Holds on After $1.2 Billion Intercept Windfall

After his Genextra SpA saw its $429 million stake in U.S.
biotechnology company Intercept Pharmaceuticals Inc. (ICPT) surge in
value by $1.2 billion in one day this month, and then pare the
gain in subsequent days, Tallarigo is standing pat for now, at a
time when others might be selling.

“When I talk to some of my colleagues in the VC world,
they look at us like we’re a bit strange,” Tallarigo said in a
phone interview. “We tend to invest earlier than they do, we
tend to take more risk than they do and we tend to stand with
our companies longer than they do. We try not to be emotional on
the action or reaction of the marketplace.”

Shareholders’ rollercoaster ride shows the risks and
rewards of biotechnology. Companies depend on investors such as
Genextra to ride out the volatility long enough to get a product
ready for regulatory approval.

Genextra Chairman Francesco Micheli, a former banker,
founded the Milan-based firm in 2004 to profit from research
developed by Italian scientists. Tallarigo, a former Eli Lilly &
Co. executive, joined as CEO in 2009. The firm’s head of
business development is Federica Draghi, daughter of European
Central Bank President Mario Draghi.

Shares Soar

Intercept rose almost fourfold on Jan. 9 after the New
York-based company said its lead drug to cure a rare form of
liver disease worked so well in a mid-stage trial that the study
was halted early. Intercept’s obeticholic acid treats
nonalcoholic steatohepatitis, an illness known as NASH in which
people who don’t drink alcohol or drink very little suffer liver
damage that resembles that of heavy drinkers.

The value of Genextra’s 31 percent stake soared to $1.64
billion with the 281 percent gain. The next day, the stock
jumped 62 percent. Intercept has since fallen by about a quarter
from the record close of $445.83 a share on Jan. 10. Intercept
fell 0.6 percent today to $329.79 at 11:25 a.m. in New York,
giving the company a market value of $6.4 billion.

While investors rejoiced, the drug still faces scientific
and regulatory hurdles, and Intercept Chief Executive Officer
Mark Pruzanski said it’s too early to predict when the product
may reach the market.

Genextra was born from a discussion between Micheli, who
helped start Italian telecommunications firm e.Biscom-FastWeb,
and Umberto Veronesi, chief scientific officer of the European
Institute of Oncology in Milan.

‘Good Scientists’

“Umberto was complaining about the fact that in Italy
there are a lot of good scientists who produce a lot of good
science and there is not enough finance backing it up,” said
Tallarigo, Lilly’s former president of international operations.
“Obviously this was a challenge that Micheli didn’t pass on.”

Genextra says it invests in companies between the seed
investment stage and before venture capital is typically
interested. The fund, which has raised 115 million euros ($156
million), aims to be the lead investor with a controlling stake
and typically seeks an exit when the company’s product reaches
proof of concept or efficacy.

While the investments don’t have to be Italian, they often
are. Intercept’s science originated at the University of
Perugia, Italy. Genextra invested in Intercept for the first
time in 2006, with additional investments in 2008, 2010 and
2012. Intercept sold shares in an initial public offering in
2012 at $15 each.

Genextra’s Portfolio

Genextra sold 1.26 million Intercept shares in October,
according to company filings, leaving the firm with 5.94 million
shares.

“We believe in the company,” said Tallarigo, who sits on
Intercept’s board. “We think it’s a great company and a great
opportunity and we will judge along the way what makes more
sense to do, but we are not in a rush to make a call.”
Tallarigo served as chairman until October, when he was replaced
by Jonathan Silverstein of OrbiMed Advisors LLC, another
shareholder.

Genextra is reaping the reward from sticking with
Intercept, said Francesco De Rubertis, a partner at a rival
investing firm, Index Ventures in Geneva. “They deserve it,”
he said. “They’ve taken on a lot of risk. Intercept has always
been a one-molecule company and at any step it could have
failed. It really shows venture capital at work.”

Intercept is one of five companies in Genextra’s portfolio.
One of the companies, Congenia, has a treatment called GNX-5086
in early-stage testing that activates or inhibits the
mitochondrial target involved in cellular aging and cell death.

‘Continuous Talks’

Congenia has been in “continuous talks” with big
pharmaceutical companies about the drug, which would be the
first targeting this protein, said Draghi. Draghi, who has a
doctorate in biochemistry from La Sapienza, University of Rome,
and a master’s in business from Columbia University, is
Congenia’s chief operating officer.

Not all of its investments are successful. The team is
debating whether to end its support for DAC, a cancer-drug
company in Milan, because the field is so crowded and the
company isn’t able to stand out.

“Obviously we are business people and we are driven by
finance so we would like to do meaningful things from a
financial perspective, but we’re not emotional about things that
may change from one day to another,” said Tallarigo.